I mentioned Bill Black’s look at financial fraud and how that sits at the heart of the crisis. A paper brought to my attention by Annie Lowrey about the next projected financial crisis of 2015 could provide an echo of that:

In a paper presented last week at the World Economic Forum in Davos to much chattering from the fur-and-cashmere class, Wyman analysts imagine an all-too-familiar scenario coming back all too soon. The next time, the authors say, the fat-cat financiers will be in Singapore or Hong Kong, chased away from New York and London by stricter reserve requirements and emboldened regulators. The bubble will appear in developing markets, with easy developed-world money and the promise of ever-spiraling commodity prices funding unnecessary building and silly investments. So there you have it—again: a big pool of money chasing market-beating returns and ultimately inflating asset-price bubbles that burst with awful consequences, from bank failures to sovereign-debt crises.

Do the authors of this report—complete with an imaginary protagonist, “John Banks,” awakened in his air-conditioned Singapore bedroom at 3 a.m. one April day with grim news—really believe another crisis is just around the corner? Well, maybe. “Financial services executives and regulators have worked hard to design a safer and more stable financial system, but we will not know whether they have succeeded until it is tested by the next crisis,” the authors note. “The first aim of our 2015 crisis scenario is to stress test the design of the new financial system, to consider how well it would stand up to this type of adverse scenario. The broader aim of the report is to encourage readers to think about the broader financial system” using many such plausible scenarios, in different markets, in different countries, in different financial institutions.

The paper was theoretical in nature, asking whether Dodd-Frank has the right controls in place to identify bubbles and stamp them out, or at least prevent taxpayer dollars from being put at risk during the next crisis. But I think Black’s admonition is worth recalling here. The regulators cannot stress-test the system properly right now because they don’t have the loan files. They can make no determination of systemic risk. And so this financial crisis of 2015 might just be a continuation of the crisis of 2008. We have no idea.

It’s worth remembering that there was a long period in American history in the 19th century where we had periodic financial crises and bank runs and panics, almost like clockwork, every 10 years or so. After the New Deal, structures were put in place to stop over-speculation and protect depositor money. They held for about 50 years. Then post-Reagan, the regulations became hopelessly compromised and then gutted. And if you count the S&L scandal, Long Term Capital Management, the Asian/South American debt crisis, and the Great Recession… we’ve pretty much been having periodic financial crises every 10 years or so.

Considering that even the members of the Financial Crisis Inquiry Commission who I’ve asked believe we haven’t even settled this financial crisis yet, the pace of crises may have accelerated.

David Dayen

David Dayen